Hepsiburada - what the street is missing

2022 to mark the turnaround or why the analysts are wrong

The fiscal year 2022 is shaping up to be an entirely different year for Hepsiburada, and for all the good reasons, than the previous one. The June quarter financials have indications and trends which lead us to thinking the potential path to breakeven could be sooner than the street gives it credit for. The analysts have been wrong picking trends and stocks. They were wrong during the IPO and they may be wrong again.

An anatomy of the sell-off in shares or what may have gone wrong

The sell-off in tech shares we have experienced since late last year is due to a combination of reasons. Investors’ growing impatience with earnings delivery and meeting guidance particularly in tech space is one. Investors have lost patience and categorically dumped various tech shares starting in 2021 and well into 2022. Also important is the overall decline in and the growing competition for the liquidity the funds can dispose off. Then you have the grossly exaggerated valuations almost across the board. The excessive valuations the tech companies are sold at, just before and during the COVID years, are indeed hard to overlook. The mispricing to the upside include some of the once-high flying tech names that are still not making money. Some of those stocks have come down as much as 80-90% from their peaks. Hepsiburada was one of them.

The company-specific reason for the sell-off

As for Hepsiburada, there is an important company specific reason we intend to draw attention here. That is the decline in predictability in the company’s sales growth following the guidance cut by the management, the downgrades by various analysts and, lately, the inflation. More important here is the downward revision to guidance. Granted the management cut its projections significantly following the IPO; and that did not look good. However, this was last year. The management had not had any track record on meeting any guidance or delivery prior to going public. It did not have to. The street judged Hepsiburada’s management on the company’s premature and ill-advised post-IPO guidance within a short two-to-three months after the stock became public and in a profoundly difficult year. Again, that was last year!

What has changed - June quarter financials are looking good, guidance raised

For the year 2022, we only have two quarters of financial statements to judge the management’s delivery on. The current year is the first full year following COVID and the management has arguably more work to do to deliver on its promises. Based on what we have seen so far in the year following the releases of the first two quarters of accounts, there is more to be optimistic about the future than there is to be pessimistic. Here is why.

June quarter income statement reports sequential improvement at almost all lines. That is a first. Both gross contribution margin and OPEX margins have posted better readings on quarter-on-quarter comparisons. The 2Q operating trends are indeed showing recovery boosting confidence for outlook in the lead up to the holiday season and beyond. The management did in fact raise its full year GMV outlook following its June quarter release. The next important event for the stock we would look out for is the release of 2023 guidance statement, which should include targets for both revenues and EBITDA. The 2023 guidance could be a trigger for shares.